Tag: pay-to-play

Kentucky’s Pay-to-Play Law

Kentucky places limitation on campaign contributors who get no-bid contracts from the state.  K.R.S. §121.056(2) provides:

No person who has contributed more than the maximum legal contribution established by KRS 121.150 in any one (1) election to a slate of candidates for Governor and Lieutenant Governor that is elected to office or any entity in which such a person has a substantial interest shall have any contract with the Commonwealth of Kentucky during the term of office following the campaign in which the contributions shall be made unless the contract shall be attained by competitive bidding and the person or entity shall have the lowest and best bid.

(a) “Substantial interest” means the person making the contribution owns or controls ten percent (10%) or more of an entity or a member of the person’s immediate family owns or controls ten percent (10%) of the entity or the person and his immediate family together own or control ten percent (10%) or more of the entity.

(b) “Immediate family” means the spouse of the person, the parent of the person or spouse, or the child of the person or spouse.

South Carolina’s Pay-To-Play Law

South Carolina restricts campaign contributions by a contractor to a candidate who participated in awarding the contract. South Carolina Code  §8-13-1342 provides:

No person who has been awarded a contract with the State, a county, a municipality, or a political subdivision thereof, other than contracts awarded through competitive bidding practices, may make a contribution after the awarding of the contract or invest in a financial venture in which a public official has an interest if that official was in a position to act on the contract’s award. No public official or public employee may solicit campaign contributions or investments in exchange for the prior award of a contract or the promise of a contract with the State, a county, a municipality, or a political subdivision thereof.

Ohio’s Pay-To-Play Law

On January 2, 2007, then Ohio Governor Taft signed into law Substitute House Bill 694, enacting changes to Ohio’s pay-to-play laws. The new law places restrictions on many political contributors who currently hold, or are competing for, a contract with the state or local government. The new law also extends these prohibitions to many local political subdivisions that were not covered under previous versions of the law, including county commissioners, city council members, township trustees, school board members, and other local boards, commissions, task/ forces, and other authorities.

The law is currently subject to litigation.

Ohio’s pay-to-play laws are primarily in R.C. 3517.13, are triggered when

  1. a partner or owner of an LLC, LLP or partnership, or an individual who owns 20% or more of the shares of a corporation contributes over $1,000; or
  2. if those business owners, their spouses, children, and the company’s affiliated political action committee (“PAC”) cumulatively contribute over $2,000 over the course of two years.

See:

Connecticut’s Pay-to-Play Law

Connecticut’s law imposes a contribution and solicitation ban on state contractors, prospective state contractors, and their principals. A few, but not all, of the principals now covered under the law are as follows:

  • Members of the company’s Board of Directors;
  • Individuals owning 5% or more of the company’s stock;
  • Individuals at the company living or working in Connecticut with the title of president, treasurer, or executive vice president;
  • Spouses, civil union partners, and dependent children (age 18 or older and living at home) of the above; and
  • A political committee established or controlled by an individual described above or by the state contractor or prospective state contractor.

On December 19, 2008, the U.S. District Court for the District of Connecticut upheld Connecticut’s  pay-to-play law. The court found the pay-to-play and accompanying lobbying contribution and solicitation bans to be narrowly tailored to prevent corruption or the appearance of corruption, which, the court said, was significant given Connecticut’s recent history with corruption at the highest levels of state government. Green Party of Connecticut v. Garfield, No. 3:06cv1030 (D. Conn. Dec. 19, 2008).

On December 7, 2005, the Connecticut General Assembly passed “An Act Concerning Comprehensive Campaign Finance Reform for State-Wide Constitutional and General Assembly Offices.” The law, codified at Conn. Gen. Stat. § 9-600, et seq., became effective on December 31, 2006 (formerly codified at 9-333).

§ 9-612(f) prohibits investment services firms with state contracts from contributing to the campaigns for the State Treasurer.

§ 9-612(g) places limitations on campaign contributions by state contractors.

New Jersey’s Pay-to-Play Law

New Jersey enacted the Campaign Contributions and Expenditure Reporting Act, N.J.S.A. 19:44A-20.13 et seq. (“Chapter 51”) to limit abuses of pay-to-play.

Among other things, Chapter 51 prohibits a State agency from awarding a State contract whose value exceeds $17,500 to a business entity that contributed more than $300 to the Governor, a candidate for Governor, or any State or county political party committee in the preceding 18 months.

On January 15, 2009, the New Jersey Supreme Court issued a unanimous opinion upholding the constitutionality of Chapter 51 and rejecting arguments that it violated free speech and free association constitutional rights. In the Matter of the Appeal by Earle Asphalt Company, ____ N.J. ____ (2009).

Chapter 51 also provides that a company that makes a contribution that would otherwise render it ineligible to receive State contracts will retain its eligibility so long as it receives reimbursement of the contribution within 30 days of making it. In the Earle Asphalt case, the president of a company made a $1,500 contribution to a county political party committee. Upon realizing that the contribution would render the company ineligible for State contracts, the president requested that the contribution be returned. Although he made that request 20 days after the contribution, he did not receive the reimbursement until 41 days after the contribution. The Supreme Court rejected the company’s argument that it should not be disqualified from receiving State contracts because it had attempted to obtain return of the contribution within the 30-day window. Instead, the Court, employing a strict and literal interpretation of the provision, concluded that the company was not entitled to the exemption because it did not receive the reimbursement within 30 days of making the contribution.

The lesson from the Earle Asphalt decision is that failure to comply with the provisions of a pay-to-play law could result in crippling financial consequences to a company that depends on public contracts if the company’s breach results in it being disqualified from receiving those contracts.

States With Pay-to-Play Laws

Twelve states have some variant of a pay-to-play law: California, Connecticut, Hawaii, Kentucky, Maryland, New Jersey, New Mexico, Ohio, Pennsylvania, South Carolina, Rhode Island, and West Virginia.

Regardless of where you are doing business, if it entails contracting with, attempting to contract with or otherwise providing goods or services to a governmental entity, you need to analyze whether your company and its employees are in any way limited with regard to making political contributions as a result of the business relationship with the government.

Registration Disclosure for Illinois Entity Registration

Illinois has a new business entity registration for procurement law in place to counteract “pay-to-play” in state contracting.

As part of the registration process, you must register the company as well as any “affiliated entity” and any “affiliated person.” Both of these terms are defined in Section 50-37 of Illinois Procurement Code.

“Affiliated person” means
(i) any person with any ownership interest or distributive share of the bidding or contracting business entity in excess of 7.5%,
(ii) executive employees of the bidding or contracting business entity, and
(iii) the spouse and minor children of any such persons.

“Affiliated entity” means
(i) any subsidiary of the bidding or contracting business entity,
(ii) any member of the same unitary business group,
(iii) any organization recognized by the United States Internal Revenue Service as a tax‑exempt organization described in Section 501(c) of the Internal Revenue Code of 1986 (or any successor provision of federal tax law) established by the bidding or contracting business entity, any affiliated entity of that business entity, or any affiliated person of that business entity, or
(iv) any political committee for which the bidding or contracting business entity, or any 501(c) organization described in item (iii) related to that business entity, is the sponsoring entity.